Oil prices are likely to keep falling until well into next year and could drop as low as $25 a barrel before recovering, according to a research report from US investment bank Merrill Lynch.
It said prices should begin to rally in the second half of 2009.
The bank said in its report that with demand vanishing across all key oil consuming regions, benchmark crude oil prices continue to plummet.
It said: “A temporary drop below $25 is possible if the global recession extends to China and significant non-Opec production cuts are required.
“In our view, oil prices could find a trough at the end of the first quarter of 2009 or early in the second quarter through the seasonal slowdown in demand.
“Then, as economic activity starts to strengthen, we see oil prices posting a modest recovery in the second half of 2009.”
Oil prices hit a peak above $147 a barrel in July but have fallen by more than $100 since then as the severity of the global economic downturn has become clear.
The bank added: “In the short run, global oil demand growth will likely take a further beating as banks continue to cut credit to consumers and corporations. We now expect an outright contraction in global oil demand in 2009.”
Yesterday oil prices fell below $42 a barrel, the lowest for four years after a report on American job losses underlined fears of reducing energy demand in the world’s biggest consumer.
US employers axed payrolls by 533,000 in November, government data showed.
Crude in New York was down $2.86 at $40.81 a barrel, having traded as low as $40.50. Brent crude in London was off $2.54 at $39.74.
US crude is expected by dealers and analysts to test the important $40-a-barrel level soon as evidence mounts of a significant decline in demand in all the major developed economies.
The price fall has led Opec members to call for increasingly strong action when the organisation meets next on December 17 and the oil-producing group should cut oil output by a significant amount if prices remain at their current level.
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